Verizon Communications Inc (VZ) — Q4 2022 Earnings Call Transcript

Good morning, and welcome to our fourth quarter earnings conference call. I'm Brady Connor, and I'm joined by our Chairman and Chief Executive Officer, Hans Vestberg; and Matt Ellis, our Chief Financial Officer. Before we begin, I'd like to draw your attention to our Safe Harbor statement, which can be found on Slide 2 of the presentation. Information in this presentation contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Discussion of factors that may affect future results is contained in Verizon's filings with the SEC, which are available on our website. This presentation contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the financial materials posted on our website. Earlier this morning, we posted to our Investor Relations website a detailed review of our fourth quarter and full year results. I hope you all had a chance to read the material. I'm going to briefly discuss the financial highlights before turning the call over to Hans to lead a discussion on our strategy, guidance and forward-looking view of the business. Slide 3 shows a summary of our results. Consolidated total operating revenue was $35.3 billion in the fourth quarter, up 3.5% year-over-year. Wireless service revenue grew 5.9% year-over-year in the fourth quarter benefiting from unlimited plan migrations, our best fourth quarter total postpaid net additions in seven years, pricing actions that we began implementing in June of 2022 and a full quarter contribution from TracFone. Consolidated adjusted EBITDA was $11.7 billion for the fourth quarter, down 0.2% year-over-year. Wireless service revenue growth was offset by higher promotional expense, declines in our high-margin legacy wireline business and inflationary cost pressures. Adjusted earnings per share in the fourth quarter was $1.19, a decrease of 10.5% compared to the similar period in 2021, driven by higher interest expense, depreciation and lower pension-related income. Finally, we delivered $14.1 billion of free cash flow for the full year 2022 and exited the year with a net unsecured debt to adjusted EBITDA ratio of 2.7x. With that, I'll now turn the call over to Hans.

Thank you, Brady, and good morning, everyone. On today's earnings call, I will focus on our strategy, guidance, expectation for the business and why I'm so excited about the opportunities for the year ahead. Let me start by saying that we delivered against all of our revised financial targets provided in July, including 8.6% wireless service revenue growth, $47.9 billion of adjusted EBITDA and adjusted earnings per share of $5.18. I'm pleased that the momentum built during the third quarter continued into the fourth quarter. Last quarter, we set the expectation of positive consumer phone net adds in the fourth quarter, and we delivered against that expectation. Although we have more work to do, I'm encouraged by the improvement and expect to build on the momentum in 2023. The improvement in the consumer performance was complemented by yet another strong mobility quarter in Verizon Business Group as well as continued success in fixed wireless access with net adds up sequentially in both consumer and business. Together with FiOS results, we added 416,000 broadband subscribers in the quarter, our best total broadband performance in over a decade and approximately 1.3 million total broadband net adds for the year. Regarding our guidance, we have positioned ourselves to improve on our performance in 2023 and expect to build good underlying operational momentum, although that will be offset by the impact of non-cash factors, such as promotional amortization in our revenue growth and adjusted EBITDA. Additionally, we're seeing some impact from high interest rates. At the same time, we expect our capital spending to reduce significantly in 2023 as we reach the end of our incremental C-band spending, which will be a tailwind for free cash flow. We're striving to make further improvement and take even more actions that will ultimately lead to better performance than the guidance we have outlined today. Matt will discuss the guidance in more detail later in the call. The industry enters 2023 with continued macroeconomic uncertainty as elevated inflation and interest rates impact the broader economy. Still, demand for our service remains strong, given the growing importance of mobility and broadband to both consumers and businesses. The combination of our network reliability, diverse portfolio of products and services, and the industry's strongest customer base provides us the flexibility to meet changing customer needs even in a difficult economic environment. We measure our success in maximizing value across stakeholders by our ability to grow service revenue, EBITDA and cash flow. Taking these three metrics together is how we hold ourselves accountable. We're well positioned to improve our performance and accelerate growth on a go-forward basis with network quality as the foundation for our strategy and growth. We expect the wireless mobility and nationwide broadband will be the most significant contributor to Verizon's growth for the next several years. In 2022, we made important progress in each of these businesses. Our growth in these areas will be driven by extending our network advantage using our C-band spectrum, which we expect will strengthen our network leadership in the coming years. We are taking a balanced approach on how we run our business; adding the right customers and generating ongoing profits from them is how we maximize value. We remain focused on our cost reduction and efficiency actions, while also maximizing our return on invested capital via better monetizing our assets to put us on track to improve free cash flow going forward. We're proud of being the strongest in the industry in terms of generating cash and want to preserve that while also continuing to strengthen our balance sheet. We're executing with discipline and will continue driving a strategy which produces sustainable long-term growth and profitability. As connectivity plays an increasingly important role for consumers and businesses, it is the quality of the connectivity that matters the most. Not all networks are architected and built the same, nor have the same quality. We have seen these differences in the past and expect that 5G will be no different. Our engineers have the best track record for designing and building networks that produce the best experience. Our network will continue to evolve with a relentless commitment to quality and reliability, adding capacity where needed and filling service gaps where they exist even as capital intensity declines in the coming years. In the shift to 5G, we have been rapidly building out our C-band spectrum with the most aggressive deployment plan in our company's history. We are tracking to 200 million POPs this quarter and are well ahead of schedule to reach our 250 million POP target by year-end 2024. C-band propagation is very similar to that of AWS and PCS spectrum, which covers more than 300 million POPs today. This gives us a clear path to scale C-band quickly and efficiently, including in the 330 markets where we expect to gain complete access to the C-band spectrum later this year. Due to the timing of spectrum availability, our deployment strategy targets the highest usage areas first with the capability to deliver the most distinguished experience in places where the majority of our customers consume mobile services. As additional spectrum is cleared, we will have access to many new markets. As with prior generations of wireless technology, customers in all areas can expect to receive the best network experience. And where we have built out the C-band, we're only getting started. Early deployments have been limited to 60 megahertz or 100 megahertz in some early clearance markets. Consumer performance in this market has been encouraging as is evidenced by better retention, more favorable gross add trends and higher premium uptake. In addition, the majority of our consumer fixed wireless net adds are on C-band. With the final tranche of spectrum expected to be available in late 2023, we can deploy an average of 161 megahertz and up to 200 megahertz in certain markets across the entire Continental U.S. When we turn on the full breadth of spectrum, we expect peak download speeds to reach 2.4 gigabits per second, up from the 900 megabits per second we see with 60 megahertz deployed, all while supporting far more users and applications. At the same time, we're also deploying our 5G standalone core. So by the end of the year, you should see a network with incredible speeds, both downlink and uplink and positioned to deliver 5G capabilities such as network slicing and voice over 5G NR, among others. We believe our network will allow us to maintain our premium position with our wireless mobility customers and provide reliable fixed wireless access services to consumers and businesses across the country. This is an example of how we can monetize our multipurpose network by scaling several revenue streams on the same infrastructure to enhance our return on investment. We're adding far more capacity to our network than the peak usage increase we’re expected in fixed wireless markets. We continue to expect that we will have 4 million to 5 million fixed wireless subscribers by the end of 2025, and those subscribers will be enabled by our current build and capital plans. Our mobility and broadband plans are supported by our deep fiber position and ongoing fiber investments. Approximately 50% of our sites are now served by our own fiber, up from 45% last year. We believe we are the only provider serving the level of its wireless network with its own fiber. This supports superior quality of services and end-to-end owners' economics. That means better reliability and higher margins and look for us to continue to expand the percentage of sites on our own fiber. We also expanded our FiOS footprint by over 550,000 locations in 2022, extending our FiOS open for sales to more than 17 million locations. You can expect continued fiber expansion in the years ahead. In summary, network quality is the foundation for our strategy and growth. And all of the moves we are making are focused on ensuring we continue our network leadership in the future. As I mentioned earlier, Verizon's success should be measured against three important metrics: service revenue, EBITDA and free cash flow. Let me now cover each of these in detail and tell you why I'm so confident in our ability to deliver against all three of these benchmarks. We expect that our network differentiation will be the cornerstone of our service revenue growth and that it will allow us to continue to attract the highest quality customer base in the industry and maintain our market-leading share of the B2B market. Our fixed wire access is also expected to contribute more meaningfully to service revenue as we enter the year growing rapidly with a base of more than 1.4 million subscribers. 2022 demonstrated to us that we need to be even more agile and responsive in the consumer market. This is one of the reasons I assumed leadership of the business late last year. We are moving into 2023 with momentum and expectation for improved performance based on recent actions and planned initiatives. After integrating TracFone over the last year, we now have a full complement of offerings from entry-level prepaid all the way up to premium unlimited postpaid plans for the first time in our history. This will enable us to better attract new customers while also retaining customers through their mobile journey. You have already seen us take a more segmented approach to the market through the Welcome Unlimited and One Unlimited plans in postpaid and the launch of Total by Verizon in prepaid. We're already seeing the benefits from these actions. In 2023, our plans will continue to evolve as we look for the best ways to cater to our customers, whether through network experience, content or other product offerings. Each new offering gives us an opportunity to engage with the prospective customers and ensure they receive a plan that best fits their needs. We remain disciplined around our core pricing and continue to perform well with our premium customers on retention and step-up activity. As we move into 2023, we're taking a more localized approach with our network and go-to-market strategy, providing greater autonomy to the teams on the front line and speeding up the pace of decision-making. This will allow us to compete more effectively across geographies, particularly where dynamics may differ by individual markets. Finally, we continue to revise our sales compensation structure, ensuring we have the right incentives in place to drive sales growth. The customers we have and continue to attract represent the highest quality customer base in the industry. Based on our customer payment patterns, which are at or better than pre-pandemic levels, and the low delinquency rates in our securitized device payment plan portfolios, we continue to see only a limited impact from the macroeconomic environment on our customers. While we are watching this closely, we have a lot of confidence in the resilience of our customer base. Scaling of new business, such as private 5G networks and edge computing will also be a strategic focus in 2023. Our funnel is strong, and we're making the appropriate investment to ensure such services provide a meaningful contribution to future growth in the years ahead, which differentiates us in the industry. You can expect Verizon to compete, but I want to underline again that we will not sacrifice financial for volumes. We continue to focus on improving our cost of acquisition and retention and believe current promotional incentives are not sustainable for the industry in the long run. Although we have participated, to some extent, in this dynamic, expect us to pursue more ways to move away from the aggressive handset subsidies with offers like Welcome Unlimited plan, which offers attractive headline pricing for customers while reducing device subsidies. We manage the business for profitability and such actions drive healthy lifetime value for the business. Moving to Business Wireline. We're taking several actions to reduce the financial impact of the unit and are scaling back on pursuing low margin revenue in order to again drive improved profitability. While this may result in missing out on revenue, it is a right move and one that will lead to higher margin and cash flow over time. At the same time, we are focused on further improving the cost structure through greater efficiencies. You may recall that we embarked on a new cost-cutting initiative late last year. The component of this initiative is the formation of Verizon Global Services. This organization is accelerating efforts to drive cross-functional efficiencies, enabling us to reinvest savings in network superiority and customer growth while contributing to long-term profitability. Additional opportunity exists in sourcing, sales and marketing and corporate systems, among others. The heavy lifting is now underway as we execute against our goal to deliver $2 billion to $3 billion of run rate savings by 2025. So our EBITDA strategy is clear: grow profitable volumes in both consumer and business based on our increasingly differentiated network and manage our expenses as you would expect us to do. By growing service revenue and EBITDA, we believe that we will be able to provide our shareholders with increasingly healthy free cash flow, which will support the strength of our balance sheet and fund our dividend growth. Our current streak of raising the dividend 16 years in a row is unmatched in the industry, and we intend to be able to continue that trend. Because our mobility and fixed wireless access products leverage the same infrastructure, they provide a capital-efficient path to future cash flow growth. We believe that we will become increasingly efficient with our capital, using less capital to generate every dollar of revenue for years to come. That will enable us to produce expanding cash flow that we can both reinvest in our business and return to our shareholders. And as you know, we're doing all of this as our capital spending budget is expected to decline from $23.1 billion in 2022 to under $19 billion at the midpoint of our guidance range this year, a reduction of nearly 20% year-over-year. In 2024, we expect our CapEx to be around $17 billion, which we expect to represent the lowest capital intensity in over a decade and among the lowest in the industry. We expect we will deliver a best-in-class network experience while reducing our 2022 CapEx levels by more than $5 billion over the next couple of years.

Thank you, Hans, and good morning. I want to spend some time walking you through our 2023 guidance while also commenting on our longer-term outlook. Our 2023 guidance reflects momentum we have exiting 2022, which we expect to drive wireless service revenue growth. For 2023, we expect total wireless service revenue to grow between 2.5% and 4.5%, driven by increased penetration of premium unlimited plans, scaling of fixed wireless, continued growth in products and services, such as content and device protection plans and the full year impact of our pricing actions taken in 2022. As noted in our earnings materials, our wireless service revenue growth outlook includes an approximately 190 basis point benefit from a larger allocation of our administrative and telco recover fees, which partially recover network operating costs to wireless service revenue from other revenue. In addition, we expect promo amortization to be approximately $1 billion higher than last year. We expect adjusted EBITDA to be within a range of $47.0 billion to $48.5 billion. This outlook reflects expected higher wireless service revenue offset by wireline and other revenue declines and higher marketing and network operating expenses. Full year adjusted earnings per share is expected to be $4.55 to $4.85. As noted on our third quarter earnings call, high interest rates are expected to result in approximately $0.25 to $0.30 of interest expense pressure in 2023 due to higher floating rate debt costs and higher securitization costs for our growing device payment portfolio. We continue to believe we have the right debt structure for the long term and have managed the balance sheet appropriately by keeping short-term maturities to a minimum in this higher interest rate environment. Higher rates of pension and OPEB, in addition to the lower pension asset base resulting from negative returns in 2022, are also expected to impact our adjusted EPS by approximately $0.12 to $0.15 compared to 2022. This flows through other income and expense in our income statement. Finally, we expect approximately $0.03 to $0.05 of impact from higher depreciation expense primarily driven by the C-band equipment being put into service across '22 and into '23. Our adjusted effective income tax rate is expected to be in the range of 22.5% to 24.0% based on current legislation. Capital spending for the full year is expected to be between $18.25 billion and $19.25 billion, including the final approximately $1.75 billion of the incremental $10 billion of C-band-related capital spending and we continue to expect total capital spending to be approximately $17 billion in 2024. The reduction from the $23.1 billion CapEx in 2022 is expected to drive higher free cash flow in 2023 despite increases in cash interest and cash taxes. As previously discussed, we will complete our accelerated $10 billion C-Band program this year after which all C-band capital expenditures will be part of our business-as-usual capital program. Looking beyond 2023, given our exit rate from 2022 we don't expect to hit the long-range outlook as we projected at the Investor Day last year. However, due to the way we have positioned our network and service offerings coming into 2023, we do expect increasing growth in revenue and cash flow in subsequent years.

Thank you, Matt. Let me summarize the Verizon opportunity in a few key points. We are making the necessary improvements to drive better performance. We have the best network, and it's only getting better even as capital intensity improves. We have the largest EBITDA base in the industry and a clear path to free cash flow expansion. And finally, we have one of the most attractive dividends in the market and we intend to be able to continue the trend of growing the dividend each year. By that, I hand it over to Brady to start the Q&A.

Thanks, Hans. Brad, we're ready to take questions.

I had a couple of questions on the guidance. The first one is how are you thinking about your confidence and the visibility of this guide as compared to a year ago. Obviously, we had the war and stuff like that. But I think the reductions in guidance, obviously, were a concern for investors. So as you went through this process was it deliberate conservatism that you were trying to bake in to make sure that you could hit, and I think, Hans, you might have mentioned exceed the guidance with additional steps. So that kind of setup would be great. And then I guess for Matt, you called out some of the pressures on the bottom line, but you had a $0.30 range on your EPS guide. I think it was $0.15 a year ago. And it sounded like on the items you gave, the range wasn't that wide. So perhaps you can just give us some color on what caused you to be as wide this year on the EPS?

Thank you, Simon. I can start. I mean when it comes to the guidance, of course, it's a little bit uncertain, as we said, coming into the year, but we're laser-focused on service growth and EBITDA expansion and hence, also the cash flow expansion. And that's how we are running our business, and that's how we take decisions. And as I said, our job is, of course, to see that we are meeting or exceeding the guidance we've given out, and that's how we're going to work all the year. And our teams are set up to work like that. We are at the beginning of the year, so we're going to see how it turns out. But clearly, we have super laser focus in the whole company on how we're executing right now and how it hangs together. And as I said before, we have now all the assets all the way from the network to our prepaid to the postpaid, all that. And for us, it's a lot of execution in a competitive market, but we definitely believe we can compete very well in that market. Matt?

Thanks, Hans. Good morning, Simon. So look, as you think about the guide for the year, obviously, there's a number of items in there. As I think about the range, we can get to the top end of the range there with strong execution, the activity around the cost program scaling, that flywheel moving faster than our base assumption. And just if we see more volumes come through the business there. Obviously, the low end will reflect the promo environment, the overall competitive environment and then we'll see items like inflation and so on. So the range of the EPS guide, I think very similar to the EBITDA guide that we've given. And I think it reflects as we come into this year, when you think about some of the unknowns will play out here in the macro environment and the competitive environment, we feel it's the right range to have for 2023. As Hans said, there's a lot of things for us to stay focused on, and make sure we produce the best result possible.

Can we discuss consumer margins in the guidance? They decreased by nearly 400 basis points in 2022. Matt and Hans provided some insight into the factors affecting promotions related to Verizon Global Services, as well as increased marketing and network operating costs. Are there any additional factors to highlight? Looking into 2023 as part of the guidance, should we anticipate consumer margins to stabilize? Do you have any clarity on whether these initiatives will lead to improved margins on the consumer side?

Thank you. I can begin. We are currently focusing significantly on the consumer segment. This includes addressing areas of weakness in our portfolio, like Welcome, to foster growth. Additionally, we are regionalizing our business on both the network and consumer sides to enable quicker decision-making and strengthen our network in local markets where we are expanding C-band. We aim to leverage this advantage. As previously mentioned, we observe a connection between C-band deployment and increases in fixed wireless access, with most of our fixed wireless access customers currently utilizing C-band. Furthermore, we are managing consumer spending more strategically, focusing on promotional efforts, retention initiatives, and media expenditures with greater agility. This approach should support our efforts to grow our revenue and expand our EBITDA. That is our objective. While Matt has discussed some challenges, we believe the fundamentals will improve due to our cost-cutting measures and the way we are operating within the consumer group. Matt?

Yes. Thanks, Hans. So as you think about the year-over-year reduction in '22. Remember, at the start of the year, we said that we expected about a 200 basis point impact because of the inclusion of TracFone in the business for the year. Obviously, accretive in absolute terms but from a margin standpoint, we did expect to see that. So then obviously, there's some other items in there. We talked a little bit about the inflation impact last year. Obviously, the competitive environment and the promo piece in there as well. So there will be some things that we have the opportunity to improve on this year's synergies from within TracFone as we move more customers over to our own network will be an upside. But then as we mentioned in the prepared remarks, obviously, the promo amortization is expected to be up on a year-over-year basis as the delay between being at these higher levels from a cash basis and then that flowing through on an accounting basis. So when you net those things out, expect something initially on a probably a similar type of level in '23 to '22 with some opportunities to push that as we go forward into subsequent years.

I'm actually going to stick with consumer. And I was hoping we can get a little more insight into two different tools you're using to go to market. The first is Welcome Unlimited, you've been advertising it quite a bit, and you've mentioned it a couple of times during your prepared remarks. I'm wondering to what extent are you finding that Welcome Unlimited is indeed a popular plan with new consumers versus the extent to which it's driving wireless shoppers into your channels where you're actually more frequently converting them into higher-tiered plans? That's the first question. And then it seems like you have been reluctant to make greater use of device promotions. Obviously, you were using them to some extent last year. How are you thinking about the role of device promos as you go to market this year and you look to sort of sustain these positive consumer phone net adds?

The Welcome Unlimited is performing exactly as we had hoped, driving store traffic and bringing in customers who get the plans they desire. We haven't observed any downgrades from this initiative; instead, we see it as an opportunity to engage with our customers. It's a bring-your-own-device plan meant for four lines, and we've learned valuable lessons from our initial Welcome launch around the third quarter, when we noticed a softening in that area and customers shifting to competitors. We’ve since redirected that trend in our favor. Our premium unlimited plans are also thriving, increasing to 45% from 41% last quarter, reflecting a solid 4% growth. We just need to remain agile, closely monitor which segments are performing well, and be proactive in those areas. Regarding device promotions, we're aware they play a part in competition and the overall market. We'll participate but remains prudent, ensuring we apply these promos at the right times for the right customers. Last year, we fluctuated between being aggressive and less so, and we plan to adapt similarly this year based on market trends. You can expect us to be responsive in the consumer unit, making swift decisions on what's effective, and pulling back on what's not. I'm actively involved daily in this process, and I believe this collaborative effort with the team is yielding positive results. There's still work ahead, and while I won't feel fully satisfied just yet, I do see promising momentum.

Sticking with wireless on service revenue, when I pull out the definition change from other to service revenue, you're guiding to roughly 1% to 2% wireless service revenue growth in '23, which is a big deceleration from almost 6% this quarter. How should we think about this in regards to phone adds and ARPU and the impact of promotions on service revenue? Can you just put the pieces together for us? And do you expect that service revenue will stay positive each quarter this year or actually flip to negative at some point? And just on top of that, typically, we see things much slower in terms of subscribers from 4Q to 1Q, while I don't expect you to guide on subscribers, do you think we'll see sort of typical seasonality this quarter? Or do you anticipate sort of better performance?

I can start, and then Matt can break down the numbers you're talking about. I mean, yes, on the premium segment, there is seasonality in the first quarter, and I don't think that's going to be different this year. However, our work is to keep up the momentum that we had from the fourth quarter into this year, where we had good store traffic quarter-over-quarter and also high conversion rate. But it also means that we need agile and see what's happening in the market. And it's a little bit early to do any guidance or something like that, which we're not doing on net adds. But clearly, there is going to be seasonality, but we have good momentum, and we're going to continue to execute and be very close to the market. Matt?

Yes, Phil, so kind of unpacking some of the piece parts of your question there. So seasonality, absolutely, we expect that to look reasonably as you would expect throughout the year from an overall standpoint. In terms of the service revenue guide, your math there is correct. When you think about the fourth quarter, you said close to 6%. Remember that included a full quarter of owning TracFone in 4Q this year versus only part of 4Q last year. So as we get into '23, finally on a year-over-year basis to talk about stuff on an apples-to-apples basis and not with and without M&A items, which is nice. So once you remove that, it's very similar. In terms of the piece parts within wireless service revenue guide, think about you got the positive impacts of the price ups. Obviously, we had six months impact last year, approximately, you get the full year impact this year. Also the benefit of the FWA momentum we had and having 1.4 million subscribers in the base at the start of this year that we're billing throughout the year. But that's offset by the promo amortization, which, as I mentioned in the upfront comments will be higher in the income statement year-over-year, with the timing of the recognition of that. And then also the impact of the volumes last year, offsetting some of the ARPU benefit we had. So the task for the team going forward is to continue the momentum that we started to see in the second half of last year, as Hans mentioned, and that will put us in a position to continue to push service revenue in the positive direction going forward.

The first one, maybe, Matt, could we refresh the free cash flow outlook for 2023? I think the midpoint was $21 billion for 2023 from last year's Analyst Day. I think if we look at the EBITDA guidance, which is roughly flat; interest expense guidance, which is up $1 billion; the CapEx, which is down $4 billion, it feels like it should be roughly $17 billion, unless there are other things in taxes and working capital related to some of these promotions. So if you could kind of refresh that a little bit, that would be awesome. And then Hans, you called out three things as it relates to the C-band deployment. And this has been a big success for Verizon is getting this build done. I think that some people have been asking themselves like where the return is from all the money that's been spent. And you highlighted higher retention, better gross adds and higher premium take rate. Are there numbers that you can put around that, that we could grab onto and say, 'Oh, when in 2024, Verizon doubles their footprint in C-band with the new spectrum getting cleared, we can put a number on that and say, 'Oh, this is going to be the return that Verizon gets from this build?''

Yes, regarding free cash flow, last year we indicated our expectations for it in 2023. Comparing today's business with a year ago reveals several differences. Capital expenditures are aligning with our expectations at this stage. The team excelled last year in deploying C-band, and we've mostly utilized the $10 billion, resulting in a positive year-over-year impact. However, we do anticipate higher cash taxes this year due to reduced benefits from elevated CapEx and the decline in bonus depreciation, which we had predicted last year. Interest rates are also different from our expectations at that time. Furthermore, the transition from the EBITDA at the end of 2022 to what we expected in 2023 is not at the level we hoped during our Investor Day a year ago. While we're not giving a specific cash flow forecast, the relevant components are in place. Overall, the year-over-year CapEx reduction provides a favorable outlook for cash flow this year. Now, I'll hand it over to Hans for the C-band question.

Yes, it remains our priority to enhance cash flow, which I have mentioned numerous times. We are committed to this initiative. Regarding the C-band, we established from the start that our acquisition is a long-term investment in spectrum, intended for many years ahead. This strategic choice reflects our belief that Verizon's wireless business will endure throughout its history, making it essential. In terms of C-band effects, I've highlighted some key points. For instance, most new customers are currently being acquired through C-band for fixed wireless access. This clearly shows that without C-band, we wouldn't be able to expand our broadband services. We achieved a record 1.4 billion net additions in broadband subscribers this past year, largely due to the C-band, which is a significant indicator. Another important metric is our performance in unlimited premium offerings, where we see success in areas where C-band has been deployed, encouraging customers to upgrade. Upgrading is crucial because we operate in a subscription business model, and increasing pricing on subscriptions is vital for long-term customer value. Additionally, private 5G networks and mobile edge computing will greatly benefit from the C-band, and we will provide updates when these become more substantial. Furthermore, our wireless business is experiencing growth due to the reliability and resilience of our network, which is attracting enterprise customers. Many of the metrics we are currently tracking are closely tied to the C-band. I’d like to note that it has been almost a year since we launched the C-band, and we're about to reach 200 million POPs. This rapid buildout is unprecedented in our company's history, and we are ahead of schedule to meet our goal of 250 million POPs by the end of 2024, as stated during Investor Day. This represents a significant shift in the market. In terms of performance, we are excelling, boasting the most resilient 5G network in the country, and we've just begun utilizing 60 and 100 megahertz. As I mentioned, our average is 160, and it will increase to 200 later on. This truly is a game changer, and we are already seeing results that support this assertion.

Sorry, I hope you can hear me. So Hans, I wonder if you could just talk a bit about your bundling strategy, particularly on the consumer side, with both the strength now in fixed wireless, but also FiOS. Is it your view that going forward, the consumer is going to buy wireless and wireline or fixed access together? Or is that more of a sort of a financial bundling strategy rather than a real product bundling strategy?

No, I think it's a really good question. We've observed a strong consumer trend in Europe that is beginning to converge with the U.S., although to a lesser extent. Clearly, our customers are expressing a desire for this, based on consumer feedback. I've spent considerable time in our stores speaking with consumers, and they see significant benefits in having both broadband and wireless services from the same provider. While I don't expect us to reach the same levels as Europe, it's an emerging trend, and Verizon is well-positioned to capitalize on it. We have strong economics for both our broadband and wireless services nationwide. We will cater to our customers' preferences; if they want bundled options, we will provide them, and if they prefer separate services, we can accommodate that too. The trend appears to be ongoing, supported by our consumer research and interactions. It's important to remember that we're also focused on small and medium businesses, making it easy for them to access both wireless and broadband. Any small or medium business today requires a digital front door and needs to prioritize mobility. This aligns well with our strategy, and our performance this year in both fixed wireless access and business mobility highlights the significance of the SMB segment for us. So yes, there is definitely consumer demand, and we will continue to address that demand.

And are there big differences between the way you think about it in FiOS versus non-FiOS markets?

No, it's not different. We see it in the same way if the customer, of course, we're much more mature historically in the FiOS footprint. On the other side, when we do fixed wireless access, it's a much more natural discussion with the customer as we have it from the beginning. So I would say that we probably have a big opportunity on the FiOS segment to have customers, both on the fixed and the mobile. On the fixed wireless access, I think that there, you start actually on a strong position when you start offering fixed wireless access with many of the customers sort of coming in either or cable provider and have our wireless, and that's how they move over to us.

Hans, when we think about the balance between unit growth versus pricing, and obviously, there you have made a deliberate choice not to chase unit growth in the near term. But could you help us think through how you think about this longer term? Because once you cede market share, obviously, it can be pretty expensive to get it back. And so when we think about this balance between pricing and unit growth, how important is unit growth, not just for short term, as you look at 2023, but also longer term, especially when it comes to postpaid phone growth.

Thank you. No, good question. I think that as you heard us at least, I mean, we think that the profitable growth is the most important, both to have the right customers retained with us and the ones we're getting. So that's an overarching measurement we need to have. Then, of course, it's always going to be new customers that are important for our base. But remember also, this market right now if you talk about the premium segment, there are of course, a certain amount of switchers in the market, and then there are a certain amount of people going from pre to postpaid. That is no infusion of new customers in the system. So they're coming from two sources. And you need to think about how you do that. And I think we have great opportunities right now with the TracFone brands we have to see and total wireless to see that we are taking care of that pre to post migration, which we've not been part of before. We still have some work with the IT stacks and all of that. But clearly, today, we're running on both sides. And on the switcher pool, yes, there we're going to be seeing that we're prudent and disciplined, but we will go for the units we think are the right. It's a subscription model long term that is even more important to increase the P sometimes than increasing the Q because this is long term that you stay with the customers to get the long-term value from them. But it's a balance of it all the time and that we will continue to have.

You talked about amortization being up $1 billion for phone subsidies to catch up with cash spending. Embedded in all your guidance is cash spending at peak levels? Is there a scope for it still to go higher? I know it depends on the competitive environment that it could eventually improve. But are we at peak levels, and it's just a question of amortization catching up. And I'm curious, when you think about the service revenue guide for wireless, are there any price increases anticipated in that guide? And kind of what level of price increase? I know it's a sensitive topic, but just curious how we should think about that revenue growth.

Now if we talk about the price increases, I just want to come back to what I said before. I mean we will be surgical and segmented in our approach. There are certain segments we need to be more aggressive on. There might be areas where we see opportunities for price increases. There are no major price increases included at this moment. We need to see where the market is going and also where the cost levels are going. But we will always look at that, but it's nothing right now that we have in our plans. Matt?

Yes. On the promotion piece, you've got the understanding of the accounting treatment versus the cash there, Doug, and certainly, our assumption is that the marketplace will continue to be competitive, but we're not going to go into the 100% details of what's in the guide there. But we do assume that we'll continue to see competitive level in line with the past couple of years. And then as Hans said, we'll continue to look for ways to put plans in the marketplace to reduce the level of subsidy out there as well, and we'll continue to push those opportunities.

Matt, can you talk about your goals for free cash flow? And specifically, how much do you think you can reduce the debt buy per year kind of going forward at this point? And then secondly, can you talk about the gating factor for fixed wireless growth it seems like you're implying with your '25 guidance that this is kind of a good run rate, but yet your speeds are going to be increasing threefold and coverage, you're going to basically get a massive amount of capacity kind of going out there. But do you think this is a good run rate for fixed wireless or can accelerate?

I can start with fixed wireless access. First of all, we just reiterated what we said in Investor Day, aiming for 4 million to 5 million subscribers on fixed wireless access. Our job is always to strive to surpass that, and we are well ahead of that plan. Regarding our capacity, we certainly have enough for that and much more. We have a multi-use network that serves mobile, fixed wireless access, and mobile edge compute, without separating them. In the distant future, beyond the 4 and 5 million mark, we might consider splitting cells to accommodate more fixed wireless access, but that's not on the horizon yet. We have plenty of capacity for the guidance and much more. Our team is working diligently to ensure we continue to exceed our targets.

Hey, Tim, on the free cash flow question. So absolutely, one of our goals is to continue to grow cash flow. Hans mentioned that you should measure us on revenue growth, EBITDA growth and cash flow growth and that cash flow growth is something we expect to be able to continue to generate going forward. Obviously, the capital reduction from the high point in '22 to the guide we gave for this year and then an even lower amount next year will be a positive towards that as we continue to obviously make progress on the income statement as well. You should see that contribute there as well. So that puts us in a position where we can start to see accelerated levels of debt reduction versus what you've seen in the past year or so. So that's the targets we have ahead of us and look forward to discussing progress against as we go forward here.

Yes. Great. Thanks, Tim. Brad, we've got time for three more questions.

I wanted to ask you about business postpaid phone net adds. They seem to be a bit lighter this quarter than they've been in the past four or five quarters. And I'm just wondering if you're seeing trends there soften due to macroeconomic factors such as corporate staff reductions or if it's competitive reasons? Or is it any slowdown in the secular trend toward company-issued devices? And then related to that, can you talk about what you're assuming in the guidance at a high level for the macroeconomic environment. For example, are you assuming soft landing scenario with small macro impact? Or are you baking in a more protracted downturn in the guidance?

Yes. The fourth quarter presents a complex situation. On the business-to-business front, small and medium-sized businesses are performing very strongly. They require digital storefronts and a mobile-first approach, especially in the post-COVID era. I believe our performance has been solid in this area. The enterprise sector is somewhat different; we are observing a decline in the bring-your-own-device trend, with more companies opting for company-issued phones, which is beneficial for us. This trend has been consistent for several quarters. Both segments appear to be doing well. On the consumer side, we experienced positive net additions. There was also some spillover from churn related to the price increase at the beginning of the quarter. Additionally, there were fewer sales days in the fourth quarter compared to a typical quarter. Customers seemed to delay their purchases until later in the holiday season, showing intent but not reflecting any significant macroeconomic changes beyond what I previously mentioned. Matt and I discussed that bad debt and delinquency rates are comparable to or better than pre-COVID levels. We are monitoring this situation closely, but overall, we continue to make good progress.

Yes. Just to add on a couple of points. As you think about the VBG net adds, you're always going to see a little bit of volatility up and down from 1 quarter to the next just because of the size of some of the transactions there. So all in all, though, jobs numbers continue to be good; business numbers, good. Obviously, there's been some high-profile layoff announcements, but overall job numbers are good, and you see that show up in the overall numbers that we produced throughout the year and look forward to continuing to have best-in-class market share within the Verizon Business Group space as we go forward. In terms of the macroeconomic assumptions in the guide, I wouldn't say we have anything too dissimilar to what you've heard from a number of other people during earnings season. But one of the things I come back to is the resiliency of our customer base. We've been through different types of economic environments in the past. We know customers pay their phone bills before they pay other bills and other outgoings. We fully expect that to continue. And so we're obviously watching the macroeconomic environment. But as Hans said, the payment patterns continue to be very strong, and we'll stay close to that, but so far, so good.

Thanks, Bryan. Brad, that's all the time we have today.